Says demonetisation also has increased digitisation across the board; all economic indicators have returned to normal and filing of income tax returns has gone up
Demonetisation has reduced Rs. 3.5 lakh crore of cash from the amounts available in the system before, and digitisation has increased across the board, even among the poor, says Volume II of the Economic Survey .
The volume, tabled in Parliament on Friday, noted that while the informal sector suffered initially from demonetisation, all indicators, such as two-wheeler sales and demand for MGNREGA work, had returned to normal. It found that while the number of income tax returns had increased sharply, the average income declared had not risen commensurately.
“In levels, and as a share of GDP and money, there seems to have been a sharp and equilibrium decline in the use of cash: as of July, the holding of cash is about Rs. 3.5 lakh crore (20%) less than what might have been the case had pre-demonetisation trends prevailed, consistent with the calculations presented in Volume I,” it said.
“Of course, a definitive judgement can only be passed if current levels of cash relative to GDP persist over time but, so far, reliance on cash appears to have declined sharply,” the Survey added.
The report also said that the effect of demonetisation on the digitisation of transactions could be divided into three categories: the poor (who are largely outside the digital economy), the less affluent sections (who have acquired Jan Dhan accounts and RuPay cards), and the affluent (who are fully digitally integrated via debit and credit cards).
“It is clear that there has been a substantial increase in digitisation across all categories,” the Survey noted.
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“And even though the immediate post-demonetisation surge has moderated in some cases, the level and pace of digitalisation are still substantially greater than before demonetisation.”
The report found this to be true for Aadhaar-enabled payments, which serve as an indicator for the poorer sections of society, Rupay cards for the intermediate category, and credit and debit card transactions for the affluent sections of society.
“The growth of taxpayers post-demonetisation was significantly greater than in the previous year (45% versus 25%),” the Survey said.
“The addition amounted to about 5.4 lakh taxpayers or 1% of all individual taxpayers in just a few months. It is, however, interesting that the average income reported of the new taxpayers — Rs. 2.7 lakh — was not far above the tax threshold of Rs. 2.5 lakh, so the immediate impact on tax collections was muted.”
The report analysed the effect of demonetisation on the informal sector via two proxies — demand for MGNREGA work, and two-wheeler sales — since the economic indicators collected by the government themselves do not include data from the informal sector.
“A proxy for the informal sector effects is two-wheeler sales, which showed a rapid decline following demonetisation but has, after more than six months, almost returned to pre-demonetisation levels,” the Survey added.
The Survey’s detailed calculations show that while demonetisation resulted in a contraction in demand for MGNREGA work in the first four weeks following demonetisation, demand normalised by the tenth week, and subsequently grew sharply.
This effect was particularly prominent for less developed States, which saw a 63% increase in demand for MGNREGA work after the tenth week.